Supriya Lifescience Limited (SUPRIYA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Supriya Lifescience Limited Q4 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Irfan Raeen from Orient Capital. Thank you, and over to you, Mr. Irfan.

Thank you, and welcome to Q4 and FY '23 earnings con call of Supriya Lifescience Limited. Today on this call, we have Dr. Satish Wagh sir, Chairman and Managing Director of Supriya Lifescience Limited, along with senior management team. This call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectation as of today. Actual results may differ materially. These statements are not the guarantees of future performance and involve unfortunate risks and uncertainties that are difficult to predict. At a detailed safe harbor statement is given on Page #2 of the investor presentation of the company, which has been uploaded on stock exchanges and company's website as well. With this, I hand over the call to Dr. Satish Wagh sir for his opening remarks. Over to you, sir. Thank you.

Good morning, and warm welcome to all participants. Thank you for joining us today to discuss the Q4 and financial year 2023 results of Supriya Lifescience Limited. To take us through the results and the answer to your questions, we have with us the top management from Supriya, represented by Dr. Saloni Wagh, Director; Mr. Krishna Raghunathan, Chief Financial Officer; and our Investor Relations Department, Orient Capital. I hope everyone got the opportunity to go through the financial results and investor presentation, which have been uploaded on the stock exchanges as well as company website. Despite the headwinds and market volatility created by pharma industry globally, we have delivered a decent quarter. I am pleased to announce that our company has achieved significant growth in financial performance over the sequent quarter. Our revenue in Q4 '23 stood at INR 142.2 crores as against INR 105.1 crores of Q3 financial year '23. Growth of 292% EBITDA margins in Q4 '23 stood at 38.3% as is 13.4% in Q3 financial year '23. EBITDA surged by the impressive 25.3%, our PAT in Q4 financial year '23 stood at INR 38.2 crores as compared to INR 9.5 crores in Q3 financial year '23 with a growth of 302%. PAT margins in Q4 financial year '23 stood at 26.9% as against 9.1% in Q3 financial year '23, which has gone up to by 17.8%. We are glad that we are in a better position, and we anticipate even better performance in the future. While our recent quarters have shown higher EBITDA margin due to the specific product and revenue mix, we maintain our conservative estimate of achieving 28% to 30% EBITDA margin for the full year. We are confident in sustaining growth, good growth and maintaining favorable margins overall. As we have previously discussed in our calls, our key strength, therapy and market, China continues to be impacted, and we are actively working on strategies to mitigate the impact and regain momentum. We acknowledge that it will take some time for the situation to normalize and for our operations to return to their normal levels. However, we remain committed to this market and are actively working on strategies to mitigate the impact and regain momentum. On the other hand, our regulated markets like Europe, North America, Latin America have performed well. We have also seen improved traction in therapies like anesthetic, anti-asthmatic and anti-allergic. We are pleased to announce the appointment of Dr. Bhirud as the President of Business Development Strategy and Research and Development. Dr. Bhirud brings with him exceptional expertise and extensive experience in the pharmaceutical industry. We firmly believe that his leadership will be instrumental in strengthening our manufacturing excellence and driving strategies alliances. With this remarkable background in the pharma sector and hands-on approach, we are confident that Dr. Shehkar Bhirud is the perfect leader of our organization. Also, I would like to inform you the Board of Directors have recommended a final dividend of INR 0.60 per equity share of face value of INR 2 each, subject to approval of the shareholders. With this, I will now hand over the call to our CFO, Krishna Raghunathan. Over to you, Krishna.

Thank you, sir. Hello, everyone, and good morning. I will now share the operational performance for the financial year FY '23, which is under review, following which we will open the floor for questions and answers. FY '23. Company recorded revenue from operations of INR 460.9 crores in FY '23 as against INR 530 crores in FY '22. EBITDA in FY '23 stood at INR 128.9 crores as against INR 213.9 crores in FY '22. And EBITDA margin stood at 28% in FY '23 as against 40% in the same period last year. And profit before tax was at INR 123.4 crores for FY '23 as against INR 207.2 crores in FY '22. PAT stood at INR 89.8 crores in FY '23 as against INR 151.8 crores in FY '22. PAT margins stood at 19.5%. Now coming for the quarter ended Q4 for FY '23. Company reported revenue from operations of INR 142.2 crores in Q4 FY '23 as against INR 181.2 crores in Q4 FY '22. EBITDA in Q4 FY '23 stood at INR 55 crores as against INR 75.2 crores in Q4 FY '22. And EBITDA margin stood at 38.7% in Q4 FY '23 as against 41.5% in the same period last year. And profit before tax was at INR 53.2 crores for Q4 FY '23 as against INR 75.4 crores in Q4 FY '22. PAT stood at INR 38.2 crores for Q4 FY '23 as against INR 46.2 crores in Q4 FY '22. PAT margin stood at 26.9%. China story remained the same as Dr. Wagh mentioned. Our main therapy and market, China is continued to be affected this quarter also. While we cannot provide an exact timeline for the recovery of the sales at this moment, we have taken decisive action to gain a better understanding of the situation. Our team will be visiting CPHI China to gather critical insights and engage in productive discussions. This visit will provide us with invaluable information that will help us determine the path forward and devise a comprehensive strategy for recovery. Now we can open the floor for questions and answers. Thanks to all of you.

[Operator Instructions] The first question is from Mr. Yogesh from Arihant Capital Markets Limited.

Am I audible?

Yes, you're audible.

So first of all, congratulations, it was a very good set of numbers for the quarter. So congratulations everyone. My first question is basically, there has been a sharp jump in gross margins, like about 66% from about 51%, 52% last quarter and even last year.

Yogesh, we are hearing a lot of background noise. Can you please, what do you call, speak on the direct mouthpiece, I think it will be easier. We are not able to hear you properly.

Am I okay now, or should I...

Yes, yes. It's better. It's better.

Yes. So first of all, congratulations, the numbers were very strong for the quarter. So congratulations for it. My first question is on the sharp increase in gross margins to about 66% approximately in the quarter from about 51% last time. So if you can share some thoughts on the jump in gross margins, which products were driving this growth?

So Yogesh, like our chairman mentioned in his opening speech, the sharp margin increase is only driven by good traction and good sales of a certain product mix in certain regulated markets. So that's one of the main reasons why the margins have shot up significantly. In terms of the therapies that have really performed well in this quarter, anti-asthmatic, anesthetic, anti-allergic, these are some of the key therapies, which have really done well in some of the regulated markets like Europe, Latin America, North America, and that's one of the main reasons why the margins have gone up.

Sure. And like in the last quarter, we had some order spending for Europe, which we expected to deliver in Q4. So was that actually seen in Q4 also, leading to jump in Europe?

Yes. Because we have mentioned in the past as well that Q3 usually because of the worldwide holidays in the month of December because we operate in the export market significantly. And in most of the export markets, December is a very slow month. Most of the countries are closed for holidays. So some of the sales from that quarter has commercialized in this quarter.

My second question is on the North America market. So we see that ramping up every quarter. So if you can share some highlights how do we see growth in North America, any quantitative numbers we can get in that market and any seasonality for North America?

Okay, please continue, sorry, please continue.

So basically, how do we see growth in North America in quantitative terms going forward and any seasonality in that market?

So definitely, we anticipate the North American markets to grow for us significantly in the next couple of years. This is mainly because some of the products in the basket which are anti-allergic, decongestants, we expect to see good traction because we have recently filed for the USDMFs for this particular market. Maybe not in the immediate 1 or 2 quarters, you can see a significant jump in the revenue. But yes, definitely, in the next 3 to 4 quarters, there would be a better traction seen in these markets. Once we start getting the USDMF and the registration through for some of these newer products.

So if we take a 1-year horizon, like can we see about 20%, 25% growth in the North American market going forward?

No, because this is a highly regulated market. And once we get the registrations, also, there is a time period in which we have to reach out to the customers, do the development validation process. So definitely not in the next 1 year, we definitely anticipate growth, but it would not be in that 20%, 25% range, what you are indicating.

And Madam, on the China market, there are some comments there, and we are looking to meet their regulators. So if you can explain that in detail, what actually we are looking at in terms of the China market, you can share some more details on it?

So China market situation remains the same what we had mentioned for the last quarter. Still a lot of volatility and instability in the market. The demand is still not increased as much as we would have wanted it to. And there is a lot of price pressure as well. So we remain in the similar situation what we were in the last quarter. We will have to wait and watch at least a couple of quarters more for the situation to sort of streamline. We are hoping that with our next visit to China, which is happening in CPHI China in June of this year, we should be able to get more market insights and understand the market reality what is happening there. But so far, situation seems exactly what it was in the last quarter, and we don't expect it to stabilize for another couple of quarters as well, but to somehow mitigate the impact of China, we are now really focusing aggressively on fast tracking some of the new product development that we have in our basket currently. And like we have seen in the fourth quarter, some of the other therapies like anti-asthmatic, anesthetic, they have performed really well in some of the regulated markets. So increased focus on these markets, and how we can further get better traction for these products.

And finally, how many products are we looking to introduce in FY '24? And how many will commercialize?

So we are looking to introduce 3 new products into our basket this year. Somewhere around quarter 3, we anticipate that these 3 products would be through R&D, and we should be able to launch them for at least the validation volumes and everything. The commercial impact of these products would be seen in probably quarter 1 of the next financial year. But at least in quarter 3, we should be able to launch them, and we should be able to start offering them to the customers for validation purposes.

This is the operator.

We got disconnected in between.

Yes. Our next question comes from Mr. Siddharth Purohit from InvesQ Investment Advisors Private Limited.

Am I audible clearly?

Yes, we are able to hear you.

So I mean this, our facility seems to be now still based on the gross budget you are showing on the balance sheet. So how are we really preparing for like off-take in this right now from the new plant because right now, we will have a sizable capacity. But accordingly, are we doing some sort of extra marketing efforts that we are putting up for the core geography that we already had and for new geography, this China, you are saying still not very sure how far that will recover. So which all areas can really recover, which all geographies can really recover in next 1 or 2 years?

Okay. So in our current product portfolio, we have about 32 APIs, and these come from 10 to 12 different therapeutic categories. Other than the top 3 products for the company, there is a basket of about 8, 10 molecules, which come from different therapies like anti-allergic, decongestant, anti-hypertensive, vitamins, then again, pain management. So all these products, we have been selling for the last 5, 6 years in semi-regulated markets. We have already started the registration for some of these products. About 2 years back, we started the registration for these products. In fact for some of the products we have recently received the CEPs and the USDMFs and the China registration also. So this basket of 8, 10 molecules, we would now want to scale up in the more regulated market. And that's where some of the impact of China would definitely be mitigated. Now once these products, they move into the more regulated market space, their average selling price also would definitely appreciate. And in terms of volume, also, we see a very good volume scale up for these existing molecules. So whatever capacity we are building at site, one would be to take care of the volume scale up of these existing molecules. Second, we do have a lot of active CMO/CDMO discussions, which are there. So some of the APIs advanced intermediates from these opportunities would also fill up some of the capacity. So these are the 2 main areas for which we are actually building the capacity.

Okay. So based on the current scenario and your understanding, any growth target that you have internally set for FY '24. Like now the margin you said you'll have something around 28% to 30% you are indicating. But on the top line front, do you see at least like double-digit growth, how you are planning for this? Because your fixed cost will probably look higher in the coming year because we must have gone through all the CapEx. So how that will get absorbed and even if gross margin improves, how that fixed cost will get absorbed [indiscernible]?

So in the past also, if you see historically, we have shown over 20% growth year-on-year. This year specifically was a one-off year for us because of -- you're all aware that our key market -- key therapy got impacted. However, going forward, also, we are committed to maintaining the same kind of growth what we have shown in the previous historical years. So it would be in trend with that. And as far as the capacity is concerned, see, some of this capacity, what we are putting in our module E, it would only be available for production in quarter 4 of this financial year. So to see the impact coming from that particular module will take some time. So it would not be as immediate at this financial year. However, in terms of going forward growth, it would be similar to what we have done in the past.

So can we expect something around 20% plus growth for the current year based on your interaction with the various customer or any number you would like to put in?

Yes, we anticipate around that range.

Okay. And 1 more clarity, madam, like in the developed market, particularly regulated market, the initial cost of launching a new product, new molecules will be probably on the higher side since you are targeting like now a good set of markets right now like now what kind of incremental cost initially will be, probably we have to bear?

See, we are not able to hear your questions, see but if I hear you right, are you checking about the per molecules R&D cost, is that your question, sir?

R&D cost as well as the cost of launching in the developed market, the regulated market, probably the filing costs and everything will be like on a higher side for the regulated market. So any specific like now a team that we are setting up for that, or what is the cost that we are budgeting for that, for launching into the more regulated market?

So nothing like that, whatever expenses we are incurring in the last couple of financial years, it is similar to what we would be incurring going forward as well. It's not a very significantly high expense revenue wherein we have to set aside some funds for doing this kind of registration. They are a part and parcel of the portfolio and would be in line with the last couple of years what we have done.

Having said that, we will also have as and when the products increase, yes, we might have a couple of new filings, which will have some impact on the R&D line. I don't think that is highly significant, which will have to be separately budgeted. No, this is always a part and parcel of Supriya's budget.

[Operator Instructions] Our next question comes from Naresh from Sameeksha Capital.

Am I audible?

Yes.

Yes. So my first question is on other current assets. So it has increased from INR 55 crores to almost INR 100 crores in the last 1 year. So can you throw some light on this? What does this pertain to, and how should this number move going ahead?

See, basically, the major impact on this line is we had paid advance for a land in Isambe, here in -- nearer to Patalganga, okay? And we were not yet able to register this because Maharashtra authorities have yet to take the environmental clearance for it, okay? I think which is expected in another, what you call maximum 3 to 4 months, that is what is my corporate affairs team is saying. Today morning, I just checked with them specifically on this, I was expecting this question. So I think post the rainy season, most probably, we should be getting the clearance and then the registration would be done and then this would be moving into CWIP line.

So most of -- majority of the increase of INR 45 crores is on those land advances...

Yes, yes, yes.

So what is the cost of the land in Isambe?

I think it's somewhere around INR 55 crores. And I think there will also be some registration costs attached to it. I think those things are yet to happen, sir.

Okay, and my next question is on Salbutamol. So have you started supplying this product in the European markets? And if you can throw on a quarter-on-quarter basis like from Q3 to Q4, have we seen a good ramp-up in this product in Europe?

So yes, we have started supplying some volumes in the European market because we got the CEP. However, it is just a small volume for validation and all. Specifically for Europe, I'll not be able to indicate any percentage of growth. But if you look at the historical, this really -- I mean, this particular therapy has really grown for us from almost 8% to 12% in this year. And we anticipate similar kind of growth. In fact, faster growth for Europe as well as North American markets for this product in the coming few quarters.

We already have the CEP and DMF for this product, right?.